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Can you make money by doing good? In 2004, Mark Reed gave up a lucrative career at the Bank of New York to launch the Contact Fund, a vehicle that pays private investors a market-rate return by supplying short-term loans to New York City nonprofits.

Here's how it works: The Contact Fund issues investors six- or 12-month notes yielding 2.50%. That yield always aims to exceed the three-month Libor rate, currently 0.23%, but there is also a do-good coupon. Returns are earned by providing unsecured loans, usually at floating rates (now 5%), to nonprofits that materially improve inner-city life in New York. The minimum investment is $25,000, and the fund is restricted to accredited investors. Reed forgoes a salary and doesn't charge a management fee, with running costs covered by the fund's interest-rate spread. The two-man operation works in offices provided by the nonprofit merchant bank SeaChange Capital Partners. Fund clients include Green City Force (preparing low-income young adults for energy-efficiency jobs) and Project Renewal (providing mental-health and housing services for the homeless).

Reed is from a fourth-generation timber family from Seattle, and for three years after graduating from Stanford University he was a "wannabe teacher" managing an after-school program for public housing residents in San Francisco. "For the first time in my life, I saw how a college graduate with a good job lives versus growing up in the projects," he says. The experience came back to him after he moved east. In 2000, Reed was on the trading floor co-managing a $500 million loan portfolio for Bank of New York, when he started thinking, it "would be really cool if you could buy a chunk of CDC [Community Development Corporation] loans," just like he was buying credit default swaps for his employer.

Four years later, Reed was paid a special dividend related to his family's timber business. "I had a lot of cash, but also a lot more complexity," he says. So he quit his job to manage his own wealth, but within a few restless months wanted a second career -- in community development. "I approached a few nonprofit banks, but no one would return my phone calls," he says. "So I called all the nonprofits I'd admired over the years, asking, 'I think you guys are great, do you need some debt?' "

In 2005, Reed sunk $500,000 of his capital, plus $300,000 from family members, into launching the Contact Fund. Reed, now 43, manages the fund's $5 million portfolio of 14 different loans on behalf of 58 investors. His personal investment in the fund, now $1 million, is first-loss capital. "It allows me to say, 'I'm going to stick my nest egg on the balance sheet, to assure you that I'm really on the line and am going to pay closer attention than anybody else.' "

Eric Schoenberg, a New York University adjunct professor of business ethics who has served on nonprofit boards and has $30,000 in the fund, says Reed's personal commitment spoke more to the man's integrity than it has served as an immediate selling point. "If I never see this money back, I'm not going to be upset about it," he says. "I see the type of organizations he lends to, and I believe in what he does."

The Contact Fund provides a $600,000 credit line to the Fifth Avenue Committee, which is developing three affordable-housing projects in Brooklyn's Gowanus and Red Hook neighborhoods, along with a development near the Barclays Center. Reed and FAC's executive director, Michelle de la Uz, drove Penta by FAC's housing units in Red Hook, where the ravages of Hurricane Sandy are still felt. At the P.S. 15 Patrick Daly School -- where a beloved school principal was gunned down during the 1990s crack epidemic -- de la Uz pointed to a long pipe running from the school to a truck outside, where its mobile boiler is housed. FAC's housing project was stalled when the hurricane filled its basements with water, and it was the Contact Fund's credit line that helped the project get back on track.

The Contact Fund short-term loans avoid the tangled red-tape procedures more-timid private foundations are prone to; also, Contact's understanding of the nonprofit business makes its financing attractive to worthy projects. Most wealthy donors are unable to analyze an affordable-housing deal crafted from a dozen different finance sources.

Since inception, the Contact Fund has doled out 23 total loans worth $6.1 million. So far, no investor has incurred a loss. A $400,000 loan to Bronx Shepherds Restoration Corporation, an affordable-housing developer, is caught up in court, after a senior employee was indicted for accepting bribes. Reed is involved in the court bankruptcy negotiations and insists that the loan -- guaranteed by an undisclosed third party "with substantial assets" -- will be paid back in full. Investor Schoenberg points out that any player in the space who "has never made a bad loan" is "probably not taking enough risk."

At an event last fall at the Wealth & Giving Forum, an organization that encourages the wealthy to give generously and smartly, Reed was witty and self-deprecating. His pitch to his fellow privileged: "You and I both care about New York City, and when we get on the subway every day, we both know we're likely standing next to someone whose family is subsisting on less than $40,000 a year. There's got to be a way to get the earning power of our assets working together for them."

It's a recipe that others on Wall Street should follow: Marry knowledge of finance with a profound societal need -- then let passion and straight-shooting do the rest.